Exercise 7-6 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2]

Lynch Company manufactures and sells a single product. The following costs were incurred during the companys first year of operations:

Variable costs per unit:
Manufacturing:
Direct materials	$	12
Direct labor	$	4
Variable manufacturing overhead	$	2
Variable selling and administrative	$	2
Fixed costs per year:
Fixed manufacturing overhead	$	370,000
Fixed selling and administrative	$	200,000

During the year, the company produced 37,000 units and sold 18,000 units. The selling price of the companys product is $55 per unit.

Required:

1. Assume that the company uses absorption costing:

a. Compute the unit product cost.

b. Prepare an income statement for the year.

2. Assume that the company uses variable costing:

a. Compute the unit product cost.

b. Prepare an income statement for the year.